What can your client expect when he purchases a foreclosure? They can expect a really good deal when they finally locate their property. What else can they expect? They can expect quite a bit of work as they look and a lot of frustration in the purchasing process. You, as their agent, can expect even more.
Since December, three of my clients have purchased foreclosures in Allegan County, Michigan. One was in Clyde Township, one in Ganges Township and one in Saugatuck Township. Buying a foreclosure is like walking on hot coals to reach the treasure - It can be compared to an Indiana Jones adventure!
My client purchased this home for $95,000 with five wooded acres. It showed inside and out like a brand new home and included all the appliances. The purchase price was about $70,000 below replacement value (including the price of the land) and $30,000 below the SEV value placed on the property by the governing jurisdiction.
I had explained to my client and provided him with a paper which he signed indicating that this might be a time consuming and frustrating experience.
I am not sure he heard me. I had to remind him at the end that he had just purchased his home at a great discount. Clients lose tract of that fact when they may have to pay for additional items during the inspection process. Additional hassle is offset by savings on the home.
Another client of mine purchased this home with three acres and a pole barn for $81,000! It was a young couple first home and they were thrilled!
Here are a few helpful hints as you plunge into the wonderful world of foreclosures.
1. Try to use your own title company. Sometime the seller will allow this and sometimes they will not. If they will not, then at least order a title commitment from your company.
One of my recent foreclosures showed 19 exceptions on my title company's commitment and only three on the one from the seller's title company! Be prepared to be shifted from person to person at the title company of the seller's choosing. They are just overwhelmed and that makes the process more difficult for them and for everyone involved.
2. Be prepared to get an addendum totally in favor of the seller and which will trump the purchase agreement. Blessed be the listing agents who attach the addendum to the listing. You can see what you are getting into before your start and explain this to your client. Don't listen to "don't worry about it. Just sign it" from the listing agent and document, document, document by e-mail to all involved parties.
3. Your client may have to have an attorney to look at the title work. One of my recent sales was a HUD property and HUD refuses to supply a warranty deed but would instead furnish a "Deed C" The title commitment would only insure a warranty deed and this had to be changed to insuring a Deed C.
It took a lawyer to accomplish this and then at closing we still were provided with the wrong title commitment and had to send it back to be corrected. Even if the title company has agreed to a change, be sure to check their work. The title companies doing the foreclosures are totally overwhelmed and as a result you will not get your HUD much earlier than the day before closing. That leaves less time to check the numbers and for your client to get the funds.
4. Be prepared for a very short period allowed for inspections. We were given only ten days to do the property inspections including the well and septic inspections. In addition, if the home has been winterized, your client will be required to pay for dewinterization and rewinterization before and after the inspections.
5. If the home is located in a jurisdiction that requires City Inspections and compliance with local ordinances, the seller will probably not have done these. You and your client will have to order them, pay for them, and assure the jurisdiction that all violations will be rectified and the property reinspected prior to occupancy. All this has to be done in the same ten day period! During the process the buyer and the buyer's agent have to be like Caesar's wife. Be sure you comply with all the conditions imposed on you. The seller on the other hand may not comply. As you recall from your Ancient History - Caesar could do whatever he wanted with Cleopatria BUT Caesar's wife had to be pure as the driven snow!
6. Have experts ready - contractors, plumbers, electricians, well diggers, septic field installers, etc. to give your client prices on any repairs that your client anticpates. It is your responsibility to help the client know what he is getting into. A property may required too much to repair it or have had its structural integrity compromised or just not have "good bones"
7. Be prepared to look at a lot of properties with your client. You may have to kiss a lot of frogs before you find your prince of a property. Not all foreclosed properties are created equal. AS soon as you find the right property be ready to pounce.
7. Be prepared to see the listing agent bow out of the entire process once the offer is accepted until it is time for him/her to show up at closing and pick up their check. Often the listing agent is paid less than the selling agent and is doing a large number of foreclosures. I guess that is why they are sometimes dropping the ball on these. Some listing agents are out of the area and have not ever even seen the property! Some of the ones I have worked with have been great, responsive and easy to work with and some of them were just in the way - when I could locate them.
8. Be sure that your client has his financing or cash ready when you made the offer and be prepared to have the client submit a check up to 10% down to be held by the listing agent.
9. Be prepared to wait some time for the bank to respond to your offer. This is really just a crap shoot. Sometimes they respond in an hour - believe me, I have had it happen - and sometimes it takes weeks.
Don't think that all the foreclosures are on the low end. Recently we have had one in Douglas on Lake Michigan that has now gone pending at under $1M although last year it was listed at $1.6M. It is an ill wind that doesn't blow someone some good. Get you buyers prepared and Ready, set, go!
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